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Micro-lending in Africa: which model is going to succeed?

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Increasing access to finance is fundamental to the growth of small and medium enterprises (SMEs) and to economic growth in Africa. Yet, access to credit is one of the main financial challenges that unbanked and low-income people face on the continent. This has led to innovations in the microcredit space that are pushing mobile financial inclusion forward. Technology is bringing fundamental transformation and opening up new opportunities to reach populations that were previously underserved. On the one hand, Fintech-based lenders like Branch ($84.7M2), Tala ($109.4M), Jumo ($79.2M), OneFi ($13M) or Mines.io ($17.2M) are springing up and driving innovation in Sub-Saharan Africa. On the other hand, more and more MNOs, traditional financial services providers (banks, microfinance institutions) and Fintech companies have begun engaging in partnerships to offer microloans (such as Jumo and MTN, Safaricom and Commercial Bank of Africa (CBA) to provide M-Shwari) around different models. However digital micro-lending in Africa still faces challenges despite the amount of capital available and exit opportunities in the financial sector. Part of the problem is the inherent risks to this business - mostly capital, currency and regulatory. Which model is going to succeed?

Publié dans : Technologie
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Micro-lending in Africa: which model is going to succeed?

  2. 2. 22018 Orange Digital Ventures Africa 0 | Executive Summary  In many countries, including those considered as emerging or developing, the lack of access to credit for a large segment of the population has led to the creation of many informal lending systems for individuals and professionals. Although their cost can sometimes be exorbitant, the inaccessibility for many to the classic bank credit has fostered the emergence of parallel networks.  In recent decades, many things have evolved in the field of credit. The explosive growth of mobile phones and e- money services are not unrelated. Indeed, with a mobile penetration rate that is sometimes higher than 100% in some countries in sub-Saharan Africa, coupled with the growing financial inclusion, the result of a continental movement initiated by mobile telecommunication operators, the population that in the past had access to no other form of payment other than cash, are slowly starting to digitize.  Thanks to M Shwari - an agreement signed in 2012 between the Commercial Bank of Africa and Safaricom - the credit operations necessarily pass through a mobile money wallet, meaning that the customer does not need to travel to an agency to open an account or even to collect the requested loan.  If for a long time, this market remained stuck because of the low rate of banking among the african population, which prevented the banks from being able to collect enough "traditional" data for purposes of scoring and evaluation of the credit risk, now things have changed. Indeed, the conventional information on credit were replaced by data of a new kind.  Different players (banks, telcos, microfinance, fintech ...) share this new market for digital microcredit, organized around different business models. Along with telcos and banks, many startups have emerged in the field of microcredit, which, often offer through a mobile application, the possibility for their clients to be granted a small amount of money. The decision to accept or refuse the amount to be granted now takes only a few minutes.  From the names of Tala, Branch or Paylater, these startups analyze hundreds of different data in order to rate their customers, an essential step in deciding whether or not to grant the credit, as well as the associated amount.  This hot market will soon see new players, such as companies specialized in solar PayGo or payment fintechs. @Orange_DV ; @MuxMi
  3. 3. 32018 Orange Digital Ventures Africa CONTENTS I – Fintech Value Chain in Africa II – An enabling environment for micro-lending III – Credit Scoring models IV – Micro-lending models V – Upcoming trends @Orange_DV ; @MuxMi
  4. 4. 42018 Orange Digital Ventures Africa  Payment was the first segment of the FinTech value chain to be developed and the Payment infrastructure is considered as the foundation of the other Fintech businesses.  Lending is the second dominant segment. It used to be the exclusive purview of banks and credit unions, and many Fintech companies are now getting into that space leveraging new Credit Scoring models.  Remittance is the last but not least core segment. Remittances in sub-Saharan Africa grew to $37.8 billion in 2017, and are predicted to hit around $39.6 billion in 2019(*). FinTech Value Chain is very fragmented with 3 dominant segments (*) Source: World Bank 1 | Fintech Value Chain in Africa @Orange_DV ; @MuxMi PAYMENT LENDING REMITTANCE
  5. 5. 5Orange Digital Ventures Africa Payment Landscape (1) (1) This list is not exhaustive. 1 | Fintech Value Chain in Africa @Orange_DV ; @MuxMi
  6. 6. 62018 Orange Digital Ventures Africa 1 | Fintech Value Chain in Africa Lending, Blockchain and Remittance Landscape (1) (1) This list is not exhaustive. Blockchain Remittance Lending @Orange_DV ; @MuxMi
  7. 7. 72018 Orange Digital Ventures Africa CONTENTS I – Fintech Value Chain in Africa II – An enabling environment for micro-lending III – Credit Scoring models IV – Micro-lending models V – Upcoming trends @Orange_DV ; @MuxMi
  8. 8. 82018 Orange Digital Ventures Africa 2 | An enabling environment for micro-lending in Africa • Borrowed amounts generally range from $1 to $500 AMOUNT • The loan term is usually one monthDURATION • The mobile phone is the preferred way to request and receive money MEANS • The applicant receives after a few minutes the desired loan NATURE • Credit scoring is a tool that will allow financial institutions (including banks) to assess the risk represented by a loan applicant, ensuring the solvency of the latter. In fact, credit scoring requires the use of statistical models to turn relevant data into numerical measures guiding credit decisions. • In general, the scoring data comes from financial variables. In the few cases, where they exist, the necessary information is provided by credit bureaus, these organizations acquire and compile at the national level the loan history of individuals. • In the absence of a central database of customer credit information, financial institutions use the historical records in their possession. These includes, but not limited to transactions with and by the customer and the financial behavior based on these transactions. • As a true catalyst for financial transactions, savings and business creation, financial inclusion is essential for economic growth and is a decisive factor in improving living standards in developing countries. • According to data collected in 2017 by the World Bank, 31% of adults in the world are currently out of any formal financial system. A significant amount of that population are mostly in sub-Saharan Africa and Asia, where various reasons such as the lack of information or resources explain this phenomenon. • In terms of banking, the number of bank accounts throughout the WAEMU (West African Economic and Monetary Union) Zone stood at 10.3 million at the end of December 2016 against 7.7 million in 2013. (*) Number of accounts in a classic financial institution (**) Sub-Saharan Africa (Only developing countries) Source: World Bank 67% 67% 56% 42% 39% 36% 34% 33% 32% 29% 27% 23% 23% 21% 20% 18% 15% 15% 0% 10% 20% 30% 40% 50% 60% 70% 80% Credit Scoring : What is all about ? Banking Rates in sub-Saharan Africa in 2017* Difficulties in collecting traditional information Digital Microcredit main criteria analyzed in this study @Orange_DV ; @MuxMi
  9. 9. 92018 Orange Digital Ventures Africa 2 | An enabling environment for micro-lending in Africa Faced with this unmet need for financial inclusion by banks and other financial institutions, a new concept has emerged with success; Mobile money started in 2007 in Kenya by Safaricom, today, similar services can be found all over the continent (and even all around the world). The objectives of e-money are: 1. Increase access to banking, by facilitating access to basic financial services previously accessible to a small fraction of the population. 2. Promote the use of non-cash means of payment for the settlement of commercial and financial transactions. 3. Improving the reach of monetary policies through a deepening of the banking and financial sector. 4. Develop the formal financial system and reduce the impact of the informal economy, so as to directly contribute to the reduction of money laundering and terrorist financing risk. 5. Diversify financial services suitable for the un(der)banked population. As of December 2017, 135 mobile financial service deployments were reported in Sub-Saharan Africa according to the GSM Association (GSMA). In the vast majority of cases, these electronic money services have replaced traditional banks in the daily routine of Africans. Often held by mobile telecom operators, mobile money has redistributed the cards in mobile financial services in Africa and offered an additional opportunity in the collection of data to assess credit risk. Source : GSMA 1 Source : « Les défis de la supervision de l’activité d’émission de monnaie électronique en Afrique Centrale », By ELOUNDOU NDEME SSA : Sub-Saharan Africa Mobile money: the key to financial inclusion in SSA* Of which 49% are in Sub-Saharan Africa 142millions subscribers 690millions subscribers 276 services in 2017 Of which 135 in Sub-Saharan Africa, 49% of the total number of services MOBILE MONEY SERVICES AVAILABILITY IN THE WORLD USER BASE EVOLUTION Dec 2011 Dec 2017 247million 90-day active accounts Of which 168 million are 30-day active users. Sub- Saharan Africa has 122 million 90-day active users. Dec 2007 Dec 2017 TRANSACTION VOLUME EVOLUTION 10 millions de transactions 1800 millions Including 1200 million mobile moneytransactions recorded in Sub-Saharan Africa TRANSACTION VALUE EVOLUTION US$ 190 million US$ 31,5 billion Dec 2017 DEC 2017 TOP 4 MOBILE MONEYUSAGE (DEC. 2017) 1 With mobile money 7services in 2007 2 30% Transfers 30% Cash-in 2 6% Bulk Payment 4 24% Cash-out 3 @Orange_DV ; @MuxMi
  10. 10. 102018 Orange Digital Ventures Africa 2 | An enabling environment for micro-lending in Africa • Two decades ago, data collection was a time-consuming and inefficient process in developing countries. In rural areas, it was particularly difficult or impossible to access consumer data. • For people living in major cities in sub-Saharan, the situation was better but not the best. While the data in terms of national censuses and consumption of goods and services were better plotted globally, no means had hitherto made it possible to draw precise population profiles. • In a world where financial institutions (Banks and MFIs) do not lend money without a solvency guarantee, which can not be obtained without a proper financial history, it was necessary to find adequate alternatives. • In contrast to the long and costly traditional processes used by banks to create a digital footprint for the un(der)banked, the Big Data inherent in the digitalization of the continent now provides an easy, quick and inexpensive procedure for collecting a large amount of data useful for credit scoring. • The advantage of this is found both on the part of financial institutions (which can best assess the risk of granting a loan to a customer), as on the side of users who when they meet the conditions can now easily access a credit. Mobile Subscribers in SSA Unique Mobile Subscribers in SSA Total number Subscribers in SSA 60% of mobile connections will be in high-speed in 2020 whereas it was only 33% in 2016 2016 420 m535 m 2020 • 6,2% average annual growth rate between 2012 et 2020 • Availability will rise from 43% to 48% 2016 731 m942 m 2020 • 6,2% average annual growth rate between 2012 et 2020 • Availability will rise from 74% to 85% • In recent years, a number of actors entered the customer risk assessment space by providing services leveraging their in-house scoring algorithms. These entities, taking advantage of the explosion in the number of data produced, have developed relevant alternatives to harvesting non-traditional information from customers who would like to apply for credit. • Although they take different forms and coverage spectra, these data are mainly provided by mobile telecommunication operators, specialized startups, large billers, etc. They thus complement the offer available to banks, in the perspective of scoring and classification of customers. • THESE NEW AGGREGATED ADDITIONAL DATA INCLUDE: 1. Data from Mobile Money Services • These are the most relevant sources for customer scoring, as mobile money services on the continent have almost completely replaced the very weakly adopted bank accounts. These data can be used to estimate user's income and be a relevant financial behavior appraiser 2. Mobile Network Data • The rationale behind this set of data is as follows:  if an individual buys airtime regularly, this indicates that he could have a stable source of income.  Calls to and from abroad also tend to indicate a relatively high standard of living 3. The Location of an individual in a rural or an urban area • This can be used to understand the customer's behavior. A location in a dense area during the week may indicate that the client has a recurring job or activity, whereas a position in the same area in the evening may indicate his/her place of living and thus determine, his/her social class Mobile is the source of a new category of data for scoring purposes Non-Traditional Data collected via Big Data @Orange_DV ; @MuxMi
  11. 11. 112018 Orange Digital Ventures Africa CONTENTS I – Fintech Value Chain in Africa II – An enabling environment for micro-lending III – Credit Scoring models IV – Micro-lending models V – Upcoming trends @Orange_DV ; @MuxMi
  12. 12. 122018 Orange Digital Ventures Africa 3 | Credit scoring models In sub-Saharan Africa, the generation of relevant data for the purpose of granting (micro) credit to a client is spread among different actors. They can be a classic financial institution (this is the case for banks and microfinance institutions), indirect financial institution (electronic money issuers), technology providers (mobile phone operators), large billers, and digital loan platforms that through registration forms and loan repayments will collect valuable data for the scoring of customers. BANKS & MFI TELCOS LARGE BILLERS E-MONEY ISSUERS Traditional data Non-traditional data +CREDIT BUREAUS LENDING PLATFORMS TYPOLOGY OF DATA SCORING HOLDERS Study Cases : Kenya & Wamu Different players hold different data @Orange_DV ; @MuxMi
  13. 13. 132018 Orange Digital Ventures Africa 3 | Credit scoring models Industry players and the nature of the information collected • Information stored in credit bureaus • Airtime, Water, Electricity, PayTV, Tuition • Mobile Money account balance history • Value, Volume and frequency of P2P Mobile Money transactions • Value of bill payments made by mobile money • Activities recorded on loans platforms • International remittance via Mobile MMoney BIGDATAFROM MOBILEMONEYBANKED CUSTOMER'S DATA PERSONAL INFORMATION ONLIN E DATA BILLS PAYMEN T • Airtime purchase, volume of calls, duration of calls, number of people contacted ... • Frequency and duration of international calls • Internet bundles, time spent on the web, phone brand • ... • Geolocation of customers during the day, in the evening, holiday periods ... MOBILE NETWORK DATA }• Frequency of loan repayment • Bank and MFI accounts transaction history : cash-in, cash-out, transfers, payments, etc. • Loans (and rates) history • Personal savings amount } @Orange_DV ; @MuxMi
  14. 14. 142018 Orange Digital Ventures Africa 3 | Credit scoring models The fundamental role of regulation in setting up models • Noting the continued expansion of e-money services in a number of countries, some central banks started establishing a specific statute for e-money exploitation. This is particularly the case in the WAMU zone, where the BCEAO (Central Bank of West African States) published in 2015, an update of the regulatory framework relating to these services. This trend, encourages telecommunications operators to obtain an authorization to become Electronic Money Establishments (EME) so as to operate their mobile money activities in an extended liability framework. • The EME : 1. Is responsible for issuing, managing and distributing electronic money; 2. Implements the compliance policy in place of the partner bank, which previously performed this activity; 3. Instructs the Central Bank, requests for launching new features and monitoring the activity. • Although this activity of issuing electronic money has enabled mobile operators to obtain independence from the banks whose regulatory entitlements they used until then, the fact remains that certain essential activities are still prohibited to them till today. In fact, in the vast majority of African states, the granting of credit is an activity strictly reserved for banks and microfinance institutions. Mobile operators can neither on their own nor through their subsidiaries responsible for issuing and managing the e-money business, loan cash to their customers. Banks – Payment Financial Institution • Need for authorization from the Central Bank prior to starting activities • Required to inform the BCEAO, 2 months before starting toissue e-money or marketing the e-money service}E-moneyissuers Microfinance - Electronic money - EME } Issuance Distribution of E-money+ Issuing institutions are not authorized to offer in any form : Limits to electronic money Loans Interest on funds received in exchange for the electronic money units issued. + Regulation bodies play a fundamental role Different typologies of EME roles Several regulatory processes depending on the issuer
  15. 15. 152018 Orange Digital Ventures Africa CONTENTS I – Fintech Value Chain in Africa II – An enabling environment for micro-lending III – Credit Scoring models IV – Micro-lending models V – Upcoming trends @Orange_DV ; @MuxMi
  16. 16. 162018 Orange Digital Ventures Africa 4 | Micro-lending models 4 main models of digital micro-lending with different players roles in the value chain BANK + TELCOS • Consumer data used for scoring • The distribution channel (electronic wallet and agent network) NBFI1 + TELCOS • Scoring, underwriting and loans made by the non-bank institution • Telcos providing data, electronic wallets and agent network STARTUP + TELCOS • Use of the electronic wallets of Telcos. No partnership signed, the startup still needs to push loans to mobile money wallets • Scoring, underwriting and loans made by the startup • Analyze and score data to decide on the granting of credit • Unlock the amount of money to lend BANQUE + TELCOS + NBFI • Telcos providing data, electronic wallets and agent network • Subscription and loans made by the bank • Startups provide credit scoring services The regulatory constraints inherent to the granting of credit (most of the time only allowed for banks and MFIs), combined with the different holders of customer data, pushed the market to organize around different models in which each part hold complementary roles: Source : CGAP, Innogence Consutling 1 NBFI : Non-Bank Financial Institution Banks Telcos provide NBFIs Telcos Telcos NBFIs Banks Startups Telcos @Orange_DV ; @MuxMi
  17. 17. 172018 Orange Digital Ventures Africa 4 | Micro-lending models Digital micro-lending services with the highest potential Company name Head Office United States United States Nigeria South Africa Model Startup Startup Startup NBFI + telcos Revenu sharing with partners No No No Yes Countries of presence Kenya, Tanzania, Philippines, Mexico Kenya, Nigeria, Tanzania, India Nigeria, Ghana South Africa, Ghana, Kenya, Pakistan, Rwanda, Tanzania, Uganda, Zambia Launch 2014 2015 2012 2014 Funds raised $109.4M (~94M equity) $81.2M (30M equity) $20.8M (10,8M equity) $79.2M (~55M equity) Number of subscribers 770K 750K 286K 5M Number of loans granted 1,3M 2M+ 1,1M+ 20M Loans originated $500M+ $200M+ $30M+ $700M Strengths • In-house app • Mobile network agnostic • In-house app • Mobile network agnostic • In-house app • Mobile network agnostic • No limit as regards to customer's bank • Accessible to customers of partnering telco • Advanced scoring algorithm • Do not bear the lending risk because not the lender • Access to customer data of all telco partners, thus higher possibility of refining the scoring process M = millions Sources http://team.finland.fi/en/article/-/asset_publisher/finnfund-invests-in-financial-services-technology-platform-jumo Leveraging digital to unlock the base of the pyramid market in Africa, Waves of digital innovation in financial services - Deloitte Wapi Capital Data from Innogence Consulting @Orange_DV ; @MuxMi
  18. 18. 182018 Orange Digital Ventures Africa 4 | Micro-lending models Model 1: Partnership between Banks & MNOs • The partnership between a banking institution and a mobile operator is the most popular and successful model in microcredit on the African continent. It is the one on which is based the famous savings product M- Shwari • Following an agreement signed in 2012 between Commercial Bank of Africa (CBA) and the telco Safaricom, M-Shwari, a savings and loans product granted by the bank, is being launched for M-pesa customers, mobile money service created in 2007 in Kenya. With M-Shwari, savings and loans transactions pass through a mobile money wallet, meaning that the client does not have to travel to an agency to open an account with the bank that owns the service • Safaricom, which has earned the lion's share of the mobile money market due to its status of pioneer, also controls 79% of the volume of voice telephony traffic and 96% of the volume of text message traffic in Kenya. This extraordinarily rich database is provided to the CBA, for know-your-customer (KYC) procedures as well as information on the consumption of airtime and the transaction history of the M-PESA account. • This information is then used by the bank during the opening of accounts, in particular to establish the credit limits granted to each customer that will, once validated, directly receive his credit into his M- Pesa account. • Following Kenya, M-Pawa was launched in Tanzania, after a partnership between Vodacom and CBA. Few months later, Safaricom launched in Kenya the equivalent of M-Shwari called KCB M-Pesa in partnership with Kenya Commercial Bank. • Banks's core banking systems infrastructure are not always structured to effectively integrate with mobile services. • Another difficulty being that the service needs to perform real-time KYC verification and use algorithms based on the customer's credit history as well as the use of telco services, to determine the eligibility of loans and the maximum amounts granted. In fact, each operation is initiated by the operator's customers from their mobile, from which they question the servers of the operator who then redirects the request to the bank's servers. • To successfully launch M-Shwari, CBA required a solution with the ability to seamlessly integrate with its partner Safaricom's mobile money platform, scaling to large number of users. Fiorano SOA Platform (Service Oriented Architecture) was chosen as the platform, allowing CBA to expose its Core Banking transactions as web service flows besides ensuring guaranteed message delivery and scalability. A model that meets local needs in Kenya… .. but with some Architectural Problems @Orange_DV ; @MuxMi
  19. 19. 192018 Orange Digital Ventures Africa 4 | Micro-lending models Model 1: M-Shwari’s example – A paperless mobile banking service offered through M-PESA • The opening of an M-Shwari account with the CBA entitles its owner to an "almost classic" bank account, even if the agreement with Safaricom involves some restrictions • The M-Shwari Savings Account is a micro-savings product that securely stores money for specific purposes or for an unexpected event. This account offers the following possibilities: 1. No minimum balance; 2. No charges levied on the account; 3. No fee to transfer money from M-PESA to M-Shwari account and vice versa; 4. In accordance with the Banking (Amendment) Act 2016, all deposits on M-Shwari will earn interest of 7.35% per annum. • The CBA has also launched an M-Shwari Blocked Savings Account, to allow customers who wish, to obtain higher interest rates under the counterpart of keeping their money between one to six months • The M-Shwari Loan Account is a microcredit product that allows you to borrow money when needed. A one-time fee of 7.5% is charged for each loan. To qualify for a credit, any customer must first be an M-PESA subscriber for at least 6 months, have saved on M-Shwari and actively use other Safaricom services, like voice services, mobile Internet, etc • By subscribing to an M-Shwari account, customers give the partnering bank the right to retrieve KYC identity verification information digitally. This personal information is a first level of data that will validate both the registration and will be essential in the establishment of the customer scoring system. • Validation of the legal notice by the client also gives the bank the possibility to confirm the details of his personal information with the State and its Integrated Population Registration System (IPRS) • Created in March 2015 to serve as a one-stop shop for personal and biometric information for locals and foreigners, the IPRS fulfills the primary goal of providing a comprehensive database for all citizens of the country • Since its launch, the Kenyan government has asked banks and telecommunication companies to pre-confirm their customers ID numbers in the system before registering them. IPRS now offers a 360-degree view, allowing these institutions to authenticate citizens‘ documents or identify Kenyans by matching their biometric and photographic details with documents in their possession • In February 2016, the government announced having onboarded more than 20 million Kenyans on its database. To date, almost all of the M-Shwari accounts are identified by this means and thus the maximum authorized limit for holding money in the account is increased to KSh250,000. In this case, the customer is then also eligible for loans from the parent bank (CBA) • As all banks are subject to "standard credit" issuance, information on the use of the M-Shwari credit by each client must be shared with the Credit Bureaus. @Orange_DV ; @MuxMi
  20. 20. 202018 Orange Digital Ventures Africa 4 | Micro-lending models Model 1: benchmark of active micro-credit services Product Country Launch year Provider Prerequisite Loan range Fee Maturité Number of users M-Shwari Kenya 2012 Safaricom & Commercial Bank of Africa M-SHWARI Savings accounts and other Safaricom product active users From KSh100 to KSh100,000 8 % 1 month 3.9m 30-days active users (March 2016) KCB M-Pesa Kenya 2015 Safaricom & Kenya Commerical Bank M-Pesa active accounts From KSh50 KES to KSh1 million 2.5% + 16% monthly interest rate 1 month 0.73m 30-days active users (March 2016) Equitel Eazzy Loan Kenya 2015 Equity Bank Group Equitel users, Equity Bank active accounts Up to KSh3 million 14 % 1 month Sh30Bn worth of loans issued in the year (09/2016) M-Pawa Tanzania 2014 Vodacom & Commercial Bank of Africa M-Pesa active users Up to KSh500,000 9 % 1 month 4.9 millions users during the first two years MoKash Uganda 2016 MTN Uganda & Commercial Bank of Africa Abonnés MTN Mobile Money, Utilisateurs actifs des services MTN, épargnants MoKash Between UGX3000 and UGX1,000,000 9 % 1 month 1 million users 3 months after deployment Airtel Money Kutchova Malawi 2016 Airtel, FDH Bank Airtel Money users From TSh1000 to TSh500,000 10 % 7 days - EcoCash Loan Zimbabwe 2012 Econet, Steward Bank Ecocash users From $15 to $500 5% (+8% if delay in refund) 1 month - Airtel Money Bosea Ghana 2016 Airtel Ghana (Tiaxa*), Fidelity Bank Ghana, Airtel active users Up to Ghc200 10-20% 1 month 3.9m 30-days active users (March 2016) MoKash Rwanda 2017 MTN & Commercial Bank of Africa MTN Mobile Money users From RWF1000 to RWF300,000 9 % 1 month 500,000 active users** Momo Kash Cote d’Ivoire 2017/2018 MTN CI, Bridge Bank Group CI MTN Mobile Money users (+6 months) From FCAF100 to FCFA500,000 1,25% + Issuance fee between 250 and FCFA3000 1 month - Source : CGAP & telcos websites (**) https://www.cnbcafrica.com/videos/2017/07/12/mtns-mokash-mobile-loans-hit-310-000-in-first-half-of-2017/ (*) Tiaxa : company running airtime loan for Airtel Ghana @Orange_DV ; @MuxMi
  21. 21. 212018 Orange Digital Ventures Africa 4 | Micro-lending models Model 2: White label solution (JUMO) • In this model, which is close to the first described (partnership between banks and mobile operators), banks are replaced by non- bank financial institutions. • JUMO is the spearhead of this second model spotted in the digital microcredit market. Starting from the observation that more than a third of adults in the world have limited or no access to formal financial services, Jumo leveraged the explosive growth of mobile money and the growing availability of mobile phones across the African continent, offering its credit granting service in several countries since 2014. To date, more than 20 million loans have already been granted by the startup . The customer dials a USSD code (ex: *303#) 1 Money issued by the partnering financial institution 4 The user can either cash-out the money or use it for digital payments 5 5 Refund made at the end of the term defined in the contract. If not, penalty charges are applied 6 The customer gets to a USSD menu with a "Get a Loan" option 2 The telcos share with JUMO the customer's data 3 Jumo: A multi-sided platform (MSP) that uses behavioral data to create financial identities A simple and fast process to optimize user’s experience • JUMO started as a mobile financial service startup under the Ghana- based AFB microfinance, a financial institution providing payday loans to government and business employers as well as consumer loans. After validating its business model and proving the potential of providing mobile financial services (mainly via business phones), Jumo has been transformed into a standalone business. • In January 2017, Letshego Holdings Limited, a pan-African financial institution listed on the Botswana Stock Exchange, acquired 100% of Jumo World's shares in AFB Ghana, to allow the start-up to focus on its core business of financial technology it will be able to continue to provide to telcos. @Orange_DV ; @MuxMi
  22. 22. 222018 Orange Digital Ventures Africa 4 | Micro-lending models Model 2: active micro-credit services Product Country Launch year Providers Prerequisite Loan Amounts Fees Loan terms Timiza Loans Tanzania 2014 Airtel Tanzan ia & Jumo Airtel clients (More than 90 days) From TSh2000 to TSh400,000 Loan terms vary from 7, 14, 21 or 28 days with a single repayment required at the end of the term 7-28 days Timiza Wakala loans Tanzania 2015 Airtel Tanzan ia & Jumo Airtel Money Agents From TSh50,000 to TSh500,000 Fluctuations 7-28 days Tigo Nuvushe Tanzania 2016 Tigo Pesa & Jumo Tigo active customers Depending on the duration 1-3weeks Kongola Zambia 2015 MTN & Jumo MTN Money users 12,5% penalty fee QwikLoan Ghana 2017 MTN, AFB, Jumo Ghana Limited MTN clients (More than 90 days) From GH¢25 to GH¢1000 6,9% (+12,5% penalty if failure in refund) 1 month Wewole Uganda 2017 Airtel & Jumo Airtel Money users and agents (More than 6 months) From UGX8000 to UGX500,000 shillings for cutomers From UGX100,000to UGX1,000,000 for agents From 6,75% to 15% 3 repayment periods of 7,14 or 21 days (*) https://www.daily-mail.co.zm/mtn-disburses-loans-worth-k150-million/ @Orange_DV ; @MuxMi
  23. 23. 232018 Orange Digital Ventures Africa 4 | Micro-lending models Model 3: Banks and Telcos partnering with NBFIs Product Country Year Provider Prerequisite Loan amount Fee Loan term Reach Airtel Money Bosea Ghana 2016 Airtel Ghana, Fidelity Bank Ghana, Tiaxa Active users Airtel up to GH¢200 10-20% 1 month 3.9m 30-days active users (Mars 2016) http://africa.airtel.com/wps/wcm/connect/africarevamp/ghana/airtel_money/home/business/terms-and-conditions# https://www.tiaxa.com/solutions- for-financial-services/emergency-top-up/ https://www.opic.gov/opic-action/featured-projects/multiple-regions/tiaxa-using-leapfrog-technologies-provide-“nano-credits”-millions • Based on the user's behavioral data Tiaxa uses patented scoring methods and algorithms to analyze user behavior and perform segmentation and scoring processes to determine the right amount to advance to each user. • Once activated, the user will benefit from advances on balance, so that his calls or data will not be interrupted as long as he has access to the additional balance made available by Tiaxa. Thus, during the next recharge, the pending amounts will be automatically recovered. • More recently, Tiaxa has developed an offer of nanocredits via mobile money, which provides a range of micro loans, directly to the customer's Airtel money wallet. The company, created more than 15 years ago, uses several algorithms that facilitate decision-making in real time. • Today, Tiaxa has more than 130 million users in 20 countries and provides seven million nanocredits per day. The company charges a small interest rate for each credit granted. • The third model in digital microcredit is in fact a mix between model 1 (Bank and Telcos) and model 2 (non-bank financial institutions and Telcos). Indeed, it sometimes happens that on the African continent and more generally in emerging markets, financial institutions are not always able to understand the shift in digital financial services without the contribution of providers outside their entities. • In Ghana, for example, this model has created an in delivering microcredit products to needy partnership between a bank (Fidelity Bank), a mobile operator (Airtel Ghana) and a third-party entity (Tiaxa), to set up the Airtel lending service: Bosea. • Thanks to its proprietary "Tiaxa Online Balance Advance" technology, the company already supports telecom operators, including Airtel, in a service focused on providing advance on balance to prepaid users when their available airtime is insufficient. @Orange_DV ; @MuxMi
  24. 24. 242018 Orange Digital Ventures Africa 4 | Micro-lending models Model 4: Startups disbursing loans via mobile phones 1 Source : https://www.privacyinternational.org/sites/default/files/2017- 12/Fintech%20report.pdf  Unlike M-Shwari, KCB M-Pesa, or the various products resulting from partnerships between Jumo and its mobile operator partners, there is no partnership agreement between Branch and Safaricom or any other Kenyan telco.  One of the most valuable sources of analysis is in SMS content, including the M-Pesa payment record data sent by the telco providing the mobile money service (Safaricom).  Indeed, each transaction is tagged with a unique receipt number that is included in a confirmation SMS sent to the customer, with the updated balance of his account. This receipt number is used to track and identify all transactions made on the customer's account.  By having access to SMS, Tala as well as Branch and other similar applications are able to determine the solvency of customers, as well as the value and volume of transactions.  Tala's data can also be used to analyze people's use of their loan, given that in the vast majority of cases, the money they receive leaves their mobile money account immediately to fulfill the need for which they have been issued: tuition fees, health fees or reimbursing a person.  The tight grip of telecom operators on mobile money services, including USSD channel control, has for a long time been a significant barrier to the entry in the electronic money industry and its various segments.  However, the increase in Internet penetration and the steady decline in smartphone prices have had a positive impact on the advent of fintechs, which have to compete with existing players on the market for digital microcredit.  This is notably the case in Kenya, where two of the main credit solutions (Tala and Branch) have emerged, using the mobile application channel to make themselves available to as many people as possible.  Branch International is part of the category of unregulated lenders, also outside the regulatory and supervisory framework of CBK (Central Bank of Kenya). Like Branch, Tala is also available exclusively through an Android application. From the data provided by the user through the application, a decision is made as to whether or not to grant a loan, to grant the exact amount requested (or a lower amount), as well as the interest rate applied to the loan (according to the level of risk assessment calculated by the startup's algorithms). @Orange_DV ; @MuxMi
  25. 25. 252018 Orange Digital Ventures Africa 4 | Micro-lending models Model 4: Classic loan request REGISTERING PERSONAL INFORMATION REQUEST REJECTED / CANCELLATIONUSER NOTIFIED DATA AND LOAN ANALYSIS REPAYMENT TERMS LOAN DISBURSEDTERM DATE ON-TIME PAYMENT REQUEST FOR TERM EXTENSION PAYMENT DEFAULT 1 2 3 45 6 7 If payment on time: improves credit score and the lender's confidence level, unlocks access to a higher loan amount and a lower interest rate CREDIT BUREAU NOTIFICATION If default: degrades credit score and the level of trust of the lender, may lead to the filing and therefore the non-granting of a loan on any platform whatsoever @Orange_DV ; @MuxMi
  26. 26. 262018 Orange Digital Ventures Africa 4 | Micro-lending models Model 4: App focus (1/3) • Tala was the first instant mobile credit app launched in Kenya under the name Mkopo Rahisi in 2014. To access Tala loans, customers must possess an Android smartphone and an active Facebook account. • To obtain a microcredit, simply download the Tala app on the Google PlayStore. By launching the app, the client will be able to make a request for an amount of money to borrow after answering a series of personal questions that will determine whether or not the client is eligible for a loan. The Tala app, however, depends primarily on reading the M-Pesa transaction history to determine whether the user will be allowed to access loans. • The minimum amount offered is KSh500, and the latter can increase up to KSh50,000 after maintaining a good repayment history. Reimbursement is normally made in three weekly installments while the interest rate is fixed at 15%. • When a loan application is approved, the client then receives a notification on the maximum amount he can subscribe to, and can choose to contract a lower amount. After choosing how much his credit will be, the user has the option to choose his repayment schedule. • There are two possibilities, between a payment in one lump sum after one month or 3 weekly payments (21 days). Tala: A scoring based on transaction history User interface on Tala @Orange_DV ; @MuxMi
  27. 27. 272018 Orange Digital Ventures Africa 4 | Micro-lending models Model 4: App focus (2/3) GEOLOCATION INFORMATION Location data through GPS TECHNICAL INFORMATION Type of mobile device used, IMEI IDs or device's serial number, SIM card information, Mobile network, Browser type, Device location and time zone setting, Contact lists… INFORMATION RECEIVED FROM OTHER SOURCES Credit bureaus (for credit history), mobile operators USER PROVIDED INFORMATION By filling out the forms in the app Branch: A loan provider using various data from mobile for scoring purposes @Orange_DV ; @MuxMi
  28. 28. 282018 Orange Digital Ventures Africa 4 | Micro-lending models Model 4: App focus (3/3) LOAN REQUEST ON PAYLATER BANK ACCOUNT INTERNET CONNECTION IDENTITY BVN VERIFICATION REQUEST APPROVED WIRE DEBIT CARD WIRE OR CASH-IN QUICKTELLER PAYMENT REPAYMENT • Either for contextual reasons (a banking rate much higher than average in South Africa) or by regulatory constrains (in Nigeria, telecom operators are not allowed to offer electronic money services), the two leading economic powerhouses in Africa have followed other paths to address issues of financial inclusion. • If in Kenya, Tala or Branch have the advantage through Safaricom to be able to disburse and recover loans to the vast majority of the population directly through M-Pesa wallets, in Nigeria, industry players like Paylater must operate differently. • Since the Fintech is not a bank, it receives virtually no deposits from the general public and offers no savings or current account. • The service provided by One Finance & Investments Ltd (a financing company licensed and regulated by the Central Bank of Nigeria) must therefore pass through the classic channel of bank accounts to make available to the end user, the sum of money claimed (in the absence of mobile money services such as M-Pesa) • Beforehand, Paylater will ask its users for detailed information on their bank account (it must be a personal bank account with the same name as the applicant registered on the platform). PayLater: Quick online loans without collateral A rigorous process based on Credit Scoring @Orange_DV ; @MuxMi
  29. 29. 292018 Orange Digital Ventures Africa 4 | Comparison of various loan services* Players M-shwari KCB M-Pesa Eazzy Loan M Coop Cash Tala Branch Model Bank + Telco Bank + Telco Bank + Telco Bank + Telco Startup Startup Total subscribers 20,1m 9,8m 1,6m 3,3m 770K 750K Number of disbursed loans 83,3m 15,4m 4,2m 2,8m 1,8m 1,5m Total value of disbursed loans (KSh) 208Bn 48,2Bn 57Bn 8,7Bn 3,5Bn 2Bn Loan portfolio (KSh) 8Bn 2,4Bn 3,8Bn 860m 780m 400m Daily loans 70K 21K 8,5K 1K 310 190 Monthly interest rate 7,5 % 3,66 % 3,66 % 3,66 % 15 % 14 % Default rate 1,9 % 2,9 % 3,1 % 2,77 % >10% 8%** Minimum loan (Ksh) 50 50 100 1000 2000 250 Maximum loan (Ksh) 100K 100K 3m 100K 50K 50K Source : Wapi Capital https://www.linkedin.com/feed/update/urn:li:activity:6367692426735341568/?commentUrn=urn%3Ali%3Acomment%3A(activity%3A6367692426735341568%2C636863198529601 9456)# --- (**) https://www.businessdailyafrica.com/corporate/tech/4258474-4286464-o0sgn9z/index.html * 2017 data @Orange_DV ; @MuxMi
  30. 30. 302018 Orange Digital Ventures Africa CONTENTS I – Fintech Value Chain in Africa II – An enabling environment for micro-lending III – Credit Scoring models IV – Micro-lending models V – Upcoming trends @Orange_DV ; @MuxMi
  31. 31. 312018 Orange Digital Ventures Africa 5 | Upcoming trends New industry players - Solar • Surfing on the very promising niche of solar energy, several startups have made their way in the sales of solar kits intended for individual houses or SMEs. The most common is a closed model, for which companies provide one or more solar panels of variable power, accompanied by a battery and devices chosen according to the needs of the customer : LED bulbs, TV, Radio, fridge, etc. • Kenya's M-Kopa, which boasts 500 new households connected daily, is a pioneer in this sector and has today distributed hundreds of thousands of kits in Kenya, Uganda and Tanzania since its launch in 2012. • In order to lower financing barriers, startups operating in the distribution of solar kits have adopted the "Pay-As-You-Go" model, a system that allows their customers to finance their acquisitions on credit by paying upfront a portion of the total amount of the purchase, and the rest in small successive installments on variable frequencies: daily, weekly or monthly payments. Once the total number of installments are met, the customer then becomes the owner of the equipment hence improving his credit score. • Today there are more than a million solar home kits that have been sold in Africa, with a current rate of about 40,000 new systems installed per month. • This business model, which has attracted no less than 360 million euros in funding over the last four years, represents around 36% of the total amount invested in African startups in 2016. Alternative models: SOLAR PAY-AS-YOU-GO Examples of African start-ups @Orange_DV ; @MuxMi
  32. 32. 322018 Orange Digital Ventures Africa 5 | Upcoming trends New industry players – Payment hubs/ aggregators Alternative models: Payment Hubs / Aggregators Examples of African start-ups • E-commerce in Africa still accounts for only 2% of total e-commerce transactions in the world. However, this segment is experiencing rapid growth, with nearly 30% of new users per year since 2010. • In order to put the odds on their side, the e-commerce players have had to adapt their strategy to the mores of local populations, still very often accustomed to payment in cash and who, for lack of confidence, prefer to have the product in their possession before paying for it. • The low rate of banking within African populations has made possible the uprising of "Mobile banking", but meanwhile bank cards are pretty much becoming agnostic of the payment gateway no matter the banking establishment of its holder, mobile money services on the other hand are still largely not interoperable and only work between subscribers of the same network. • This lack of seamlessness between payment solutions and the technical complexity of their integration penalizes merchants and e-merchants, who must enter into negotiations with each service provider in order to authorize mobile money payments on their platforms. • To overcome this situation, some Fintechs on the continent have developed hubs or aggregators to accept all means of payment, from cash to Mobile Money, and which facilitate the access to all digital services on a single terminal or within an API for online integration. @Orange_DV ; @MuxMi